HMRC has published Revenue & Customs Brief 25/10 announcing the change of policy. Following representations from charities that pay per click advertising should be zero-rated HMRC has reviewed its approach and concluded that it should change the VAT treatment of pay per click advertising supplied to charities.

The Revenue & Customs Brief invites businesses that have supplied pay per click advertising the charities to make claims for overpaid VAT. HMRC say that claims will only be accepted for supplies made in the last four years and subject to the unjust enrichment rules. This means that claims can be made for supplies made in the last four years, i.e. back to 2006 at the time of writing, and the VAT refunded to the charities from which it was collected.

Action to take

Suppliers of pay per click advertising

You should seek confirmation from your charity clients that they qualify for the zero-rating of advertising services using the form of declaration in the VAT Notice on “Charity advertising and goods collected in connection with donations” if you consider it necessary. At the very least you need to show that the service was provided to a charity.

You should also prepare a detailed claim for submission to HMRC. The claim should include as much supporting evidence as possible.

Charities

Contact your pay per click advertising suppliers and request a refund. It will no doubt help your supplier if you provide a list of the invoices involved together with the amounts, and suitable confirmation that you are a charity. You may wish to use the form of declaration shown in Section 10 of VAT Notice 701/58 (January 2010).

If you need further help with this contact your usual VAT adviser.

Related posts:

1. Sponsorship – can it be zero-rated as charity advertising?
2. Charity Challenge Events – are they exempt fund-raising events?
3. Charities – Donated Goods – Gift Aid – is there a sting in the tail?

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Here’s some important information for businesses with a VAT return period ending on 28 February 2010:

Do your VAT return before Easter!

Why?

Because HMRC will be upgrading there online system over Easter. And you won’t be able to access the system from Saturday 3 April 2010 until 6 April 2010.

Don’t believe me? Have a look at HMRC’s website where it says:

Normally you would have seven days in which to submit your return. By carrying out this work over Easter HMRC are reducing the time available for you to do your VAT return. My recommendation is to get your VAT return submitted before Saturday to avoid problems that might arise should the work overrun or there be too many trying to do their VAT return on Tuesday 6 April 2010.

Penalties

If you are late submitting your VAT return you will probably be sent a surcharge liability notice. If this is the first time you receive one it means that you are liable to a penalty if you submit a VAT return late in the following twelve months, i.e. for a VAT period ending 28 February 2010 you have to submit all VAT returns, and pay the VAT, on time for all periods up to 28 February 2011.

If you receive a surcharge liability notice and it is not your first, you may be charged a penalty. The penalty will be calculated as a percentage of the tax due, on a rising scale, from 2% to 15%, depending on how many times you have been late with your VAT return.

Frightening, isn’t it?

I’d love to have your comments on this. What do you think? Should HMRC have done this work later in the month to avoid putting unnecessary pressure on businesses?

Related posts:

1. Doing VAT returns online…
2. Online filing for VAT Returns
3. HMRC move the goal posts on making VAT payments to them by cheque

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For periods starting after 30 April 2010

The fuel scale charge applies to all business cars which are used for
private motoring. The following table sets out the fuel scale charges
for VAT periods commencing after 30 April 2010.

The amount listed under Scale Charge is the VAT inclusive amount. You need to subtract the VAT due to get the figure to include in Box 6 on your VAT Return.

For vehicles which do not have a CO2 emissions figure, you should identify the CO2 band based on engine size, as follows:

Whilst every effort has been made to ensure that the figures in the following tables are accurate you should still check that the figures are correct.

Related posts:

1. VAT Fuel Scale charges – not got a CO2 figure for your car?
2. Fuel Scale Charge information from 1 January 2010
3. Fuel Scale charge information for 2009

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Chris Lodge, the manager of Kaslers’ road traffic accident department explains how new rules will affect simple injury claims from next year.

Getting it Right

A brand new streamlined process for dealing with

Road Traffic Accident injury claims.

After being injured in a road accident, the last thing anybody needs is long drawn out legal process.  Fortunately, in the very near future, the waiting time for most of these cases is going to be dramatically shortened – if the lawmakers have finally got it right.

With effect from April 6^th 2010, a completely new process for road accident injury claims becomes compulsory and where the insurer of the driver responsible for the accident admits liability immediately, the claim should normally be finalised in a matter of a few months.

Here’s how it works

Stage one

First, the injured person’s lawyer will have to email a very detailed Claim Notification Form to the insurers via a central website operated by the Ministry of Justice.

Once they have received the form, the insurers have only fifteen business days to state whether or not they accept liability.  If they do AND comply with certain other time limits, the claim will be dealt with under the new procedure.  The insurers will benefit because the legal costs they have to pay will be much reduced and the injured person will benefit from a far simpler and faster process.

Stage Two

If the injured person owns the car driven in the accident, then his or her lawyer will probably arrange for either the repairs, or an inspection and valuation if the vehicle is a write-off.  As far as injuries are concerned, the lawyer will arrange to have the person assessed for treatment and an examination by an independent medical practitioner who will prepare a medical report in the format required by the new process.  This will cover the extent of the injuries and their likely ongoing effects on such things as the ability to work and go about normal daily activities.

This medico-legal report, together with further details of the claim, must be emailed to the other driver’s insurers within fifteen business days of it being approved by the injured person.

The Final Settlement Pack

When the claim is ready to be settled, the lawyer must discuss and agree with the client the amount of compensation to be sought.  Clearly, this must be a realistic figure based on the lawyer’s expertise in personal injury work.  The compensation claim, together with a list of the injured person’s out of pocket expenses, will then be submitted electronically through the central website to the other driver’s insurers in the form of a Settlement Pack

The insurers then have a further fifteen business days either to agree the amount sought or make a counter offer. After that a further twenty business days are allowed to enable negotiations to continue.

The Interim Settlement Pack

If the medical report indicates that further medical evidence may be needed at a later date before the claim should be settled,  the injured person’s lawyer should ask for a payment on account of the claim of £1000.00, which cannot be refused.  (They can seek more than this where valid reasons are provided).  The claims process is then put on hold until they can produce the final medical evidence at which point the Final Settlement process is followed.

What happens if the claim leaves the process?

If the insurers do not accept liability; do not comply with the time limits described above; deny that the symptoms referred to in the medical report were caused by the accident; or if they allege fraud, the claim leaves the new process and the matter is then handled by the current more lengthy and expensive process.

Generally, it will not be in the interest of insurers to allow the claim to leave the new process as the legal costs they will have to pay, if the claim succeeds, will be far greater.

What happens if the value of the claim cannot be agreed?

Stage 3

If no agreement about the value of the claim has been reached after the period allowed for negotiations has expired, it remains in the process, but the insurers must pay the value of their last offer and Court proceedings are then issued.   These can take the form of an oral hearing, or (if both sides agree) by means of detailed written statements sent to the court so that the District Judge can value the claim.

Whilst the District Judge at the Court will be aware that settlement offers have been made by both sides, the amount of the final offers will be kept in a sealed envelope until after the amount to be awarded has been decided.

Getting it right here is very important because if the District Judge awards more than the insurer’s highest offer, the insurer must pay both side’s legal fees of the Stage 3 process, plus the court fees.  However, if the amount awarded is less than that offered by the insurers in Stage 2, the injured person will be liable for the costs of both sides of the Stage 3 process.  Plainly, it is essential that the injured person’s lawyer has ensured that they have adequate legal expenses insurance (legal protection) to cover them in case this happens and that the legal expenses insurers have agreed with the lawyer’s recommendation that the claim proceeds into Stage 3.

Getting the right advice

A single word of warning.  Generally the new process will be far better for accident victims than the current one as both sides are both obliged and incentivised to proceed very quickly.  However there is the risk that, because the legal fees will be so much lower, shortcuts may be taken by legal representatives.  Their clients may even advised to accept offers well below the true value because lawyers will receive no additional payment for the extra work put in, or the additional time necessary to pursue claims through to their proper conclusions.

For more information, see the official website.

Chris Lodge has specialised as a Road Traffic Accident Solicitor for over 25 years and sits as a representative for the Motor Accident Solicitors Society on a Ministry of Justice working party testing and piloting the electronic notification form described above.

Got any questions or comments? I’d love to read them – use the comments section below.

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For small businesses the Flat Rate Scheme (FRS) can be very useful as it simplifies the preparation of a business’s VAT return. Before you rush off to sign up for the FRS you should take a few moments to consider whether using the FRS will benefit your business. This scheme probably isn’t beneficial for businesses that apply the zero or reduced rate to most of their supplies.

How it works – in simple terms

You continue to raise invoices as normal, applying VAT at the appropriate rate. When you come to the end of the VAT period you use the total amount invoiced, i.e. the value plus the VAT, to work out how much VAT you owe to HMRC. You take this figure and apply the flat rate for your business. The answer is the amount of VAT you have to pay to HMRC.

What you don’t do is claim any VAT on general expenses as the flat rate has been set to take account of this. Where you make a major purchase you may be able to recover the VAT on the cost in addition to using the flat rate scheme. This only applies to capital items of more than £2,000.

Who cannot use the flat rate scheme?

The scheme cannot be used by businesses using:

• the Cash Accounting scheme – the FRS has its own cash accounting method.
• Retail schemes – the FRS has its own retail method.
• a margin scheme for second hand goods.

There are other reasons why a business might be excluded from the scheme. These are full details of these in HMRC’s guidance in Notice 733: Flat Rate Scheme for small businesses

Businesses that expect their turnover to exceed £150,000 (excluding VAT) in the coming twelve months aren’t allowed to join the scheme.

Should you use it?

The answer is: it depends! You need to weigh up what you would be paying to HMRC using the normal scheme and how much you would pay under the FRS. Many would expect to pay no more in VAT using the FRS or even paying less. Given the benefits, however, some might prefer to pay a little more as the savings in time and hassle might outweigh the cost of using the scheme.

HMRC very kindly provide a ready reckoner to help you work out whether you could benefit from using the scheme.

The biggest difficulty?

This would probably be deciding which flat rate to use. There is a table of the flat rates and the broad business area in the ready reckoner, and additional guidance to help you work out which description to use. It is important to get this right as if HMRC think you have got it wrong and paid too little VAT they’ll want to assess for the underpaid tax. Alternatively, if you set it too high and pay too much VAT, you are losing out.

Discount for new VAT registrations

Businesses in the first year of VAT registration get a 1% reduction on the flat rate they apply. This covers only the first year of the business’s VAT registration. If you are entitled to the discount there are two things to remember:

1. Apply the lower rate until the end of the first year of the business’s VAT registration; and
2. Apply the full rate after the end of the business’s first year of VAT registration.

Got a question on this article or just want to make a comment? Please leave it in the comments section below. I’d love to hear from you.

Related posts:

1. Flat rate scheme – new rates
2. VAT Accounting schemes that can be useful to you
3. Five Things You Need to Know About VAT Accounting

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With the change in rate of VAT on 1 January 2010 the rates to be applied by those using the Flat Rate Scheme have changed, again! For information on how to apply the changes visit HMRC’s website.

The following table shows the percentage that businesses in the Flat Rate Scheme should use from 1 January 2010 in preparing their VAT returns.

(1) * “Labour-only building or construction services” means building or construction services where the value of materials supplied is less than 10 per cent of relevant turnover from such services; any other building or construction services are “general building or construction services”.

Related posts:

1. The VAT Flat Rate Scheme for Small Businesses – a brief description
2. Can churches get zero-rating for work carried out on them?
3. Euro/Sterling Exchange rates from January 2008 to September 2009

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Continuing the series of articles describing changes to the VAT rules announced for 2010 we will now cover the rule changes related to EC Sale List submissions. You should pay attention to these changes if you are receiving intra-EU supplies or services, as well as if you supply services or goods to businesses located in other EU Member States.

So, what are the main changes in this field?

First of all, currently ESLs are required only for B2B intra-EU supplies of goods. From 1 January 2010 they will also be required for supplies of services to which a reverse charge applies in the customer’s Member State. Other important rule that changes is the frequency of ESL submissions. Every Member State has several options to choose from.

In the UK ESLs relating to services can be submitted either quarterly or monthly – the choice is given entirely to business owners. With ESLs relating to goods the new rules are more complicated. The option of submitting ESLs quarterly will be available to businesses only if the value of the goods supplied to other Member States hasn’t exceeded £70,000 (excluding VAT) in any of the previous 4 quarters. Otherwise, they will be required to submit ESLs monthly. From 1 January 2012 this threshold will be reduced – halved, actually – making £35,000. The business will be allowed to revert to the quarterly submission option if the value of goods supplied to other EU member States has been below the threshold for five consecutive quarters.

If the supplies fall under the exceptions to the ‘general rules’ covered by (Article 194 of Council Directive 2006/112/EC) or if the recipient is not VAT registered, ESL submission is not required.

All business are free to choose to submit their ESLs monthly.

To learn more about these rule changes we recommend that you take a look at the ESL guidance and Revenue & Customs Brief 2/09.

Another important thing you need to keep in mind to stay on the safe side is that businesses that submit their ESLs on paper will have only 14 days from the end of the month to do so. Business that choose the electronic method will be given 21 days. The difference is explained by the fact that HMRC staff will need additional time to enter the data submitted on paper into the database. According to the ESL guidance available from the HMRC’s website in PDF, there are several methods of electronic submission of ESLs:

• The on-line form.
• Bulk upload of data using a Comma Separated Variable (CSV) or Extensible Mark up Language (XML) file.
• XML channel.
• Using UN-EDIFACT format.

Businesses can choose any of the four methods mentioned above, whichever suits their needs best – or the paper method.

Further changes to the rules are expected in the coming years. All these measures are part of the anti-fraud package adopted by EU Finance Ministers in February 2008. They are also expected to modernise and simplify the existing system and will take place between 1 January 2010 and 1 January 2015. Though all this period of time VATark is going to continue explaining the latest changes and answering related questions, so if you feel that any of the rule changes described in the article need further explanations, please comment below.

Related posts:

1. New Place of Supply of Services rules from 1 January 2010
2. Changes to Time of Supply Rules
3. New Invoicing rules in the UK

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If you run a VAT registered business you will get bills that show a VAT inclusive price. You need to know how much VAT is in that price so you can reclaim it on your next VAT return. Here’s how you do it:

Let’s work with a nice round figure: £100.

The current VAT rate (November 2010) is 15%. So you multiply £100 by 15 and divide it by 115… Eek! big numbers. It’s easier, you multiply it by 3 and divide by 23.

100 x 3 = 300

300 ÷ 23 = 13.0434

The VAT in £100 is £13.04.

The VAT rate goes up on 1 January 2010, so here’s how it works from then. Same method just different numbers:

100 x 7 = 700

700 ÷ 47 = 14.8936

The VAT in £100 is £14.89 when the VAT rate is 17.5%

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The exchange rate for use for November 2009 for VAT purposes is:

1.1081

You can find the full list of exchange rates for November 2009 on HMRC’s website.

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1. Exchange rate for Sterling/Euro for October 2009
2. Euro/Sterling Exchange rates from January 2008 to September 2009
3. Rates of Exchange

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Sorry, this is a little bit technical and is aimed fairly and squarely at those that run theatres. The intention is to help you overcome the apparent blindness of HMRC to the link that exists between production costs and income generated by the theatre from the sales of programmes, etc.

This only affects theatres that qualify for exemption from VAT on admission charges. Such venues have both taxable and exempt income and are thus said to be partly exempt. This means that they have to restrict the VAT they recover on costs to that which relates to taxable activities.

HMRC have published a Revenue & Customs Brief, 62/09 VAT: Partial Exemption – VAT deduction by theatres on production costs, which sets out their ‘revised policy’ following the VAT Tribunal decision in the case of Garsington Opera.

In the Revenue & Customs Brief HMRC state that production costs will only become partly recoverable if there is a firm intention to make taxable as well as exempt supplies when the costs are incurred. Later in the Revenue & Customs Brief HMRC say the intention must be a genuine intention, not an aspiration or hope.

What do you have to do to create the direct and immediate link between the sale of programmes and the production costs? You have to show that you had an intention of selling programmes at the shows (even though this is the only time that programmes are usually sold, and a direct and immediate link seems to be there anyway) at the planning stage. To do this you need to add the programme production to the list of things to do when planning a production, and include in your decision making process a note that it is the theatre’s intention to raise money from sales of the programme at the time of allowing public admission to the production.

Other items that you might want to include in your planning are additional purchases of goods to be sold in the theatre, extra staff being employed to man selling points of memorabilia, etc. should all create a direct and immediate link to the production costs.

And remember to make sure that your fund-raising team seek sponsorship for particular productions, or production runs, as highlighted in the Revenue & Customs Brief to create a direct and immediate link between the production costs and the sponsorship.

HMRC, however, appear to take a different view but don’t appear to be able to put together a fully reasoned argument as to why it is so much easier to show a direct and immediate link to the exempt activity (admission charges) and yet so difficult to show one to taxable activities (e.g. programme sales).

I cannot guarantee that you won’t have trouble with HMRC when they review your partial exemption position if you follow the suggestions in this article. What I would expect though is that if you take your case to the VAT Tribunal, and beyond if necessary, the decision will be that there is a direct and immediate link.

Now for the trite comment: every case is different, so you must seek advice on how to deal with this for your organisation from a professional VAT adviser.

If you have any questions about this issue, or wish to make your own comments please use the facility below. I look forward to hearing from you.

Related posts:

1. Charities – Donated Goods – Gift Aid – is there a sting in the tail?
2. How to make the best of the VAT regulations to maximise cash flow
3. A salutary tale for the new business…

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